A trio of reinsurance focused equity analysts have initiated coverage this week on the newly launched and IPO’d Blue Capital Reinsurance Holdings, the third-party capital financed, fully-collateralized reinsurance subsidiary of reinsurer Montpelier Re.
Blue Capital Re raised $125m in its public IPO from third-party investors and another $50m in a private placement sold to Montpelier Reinsurance Ltd., giving it a market capitalisation of $175m when it listed on the New York Stock Exchange under the ticker symbol BCRH.

As a listed reinsurer, Blue Capital Re is going to come under the same analyst scrutiny that large reinsurers with traditional balance-sheets are subjected to. That should make for interesting reading over the coming year, as Blue Capital Reinsurance Holdings is fully-collateralized and backed by third-party capital, which should give it a lower cost-of-capital than some peers.

Keefe, Bruyette & Woods initiated coverage on the shares of Blue Capital Reinsurance Holdings Ltd. on Monday, saying that they gave the stock a ‘market perform’ rating. KBW gave the shares a $20 target price and analyst Brett Shirreffs said that he believed that the chance of dilution in the future, due to the close relationship between Blue Capital and Montpelier Re, had already been fully priced in by the market.

Finally, Deutsche Bank analysts gave the stock a ‘hold’ rating and set a target price of $19.50. Analyst Josh Shanker commented that Blue Capital Re could act as a ‘yardstick’ for the group of reinsurers he covers. Shanker said; “New capital has been readily flowing into the reinsurance market, particularly the low barrier-to-entry property-cat space. Blue Capital Re’s early trading suggests investors want a slight discount to book in earning a “goal” mean 8% ROE and median 12-13% ROE. While this outcome may modestly overstate what we think Blue Capital is capable of, we believe this expectation is not far off and note that this magnitude of return is meaningfully higher than many of the incumbent carriers can currently achieve.”

The fact the Blue Capital Re follows a collateralized reinsurance model, with backing from third-party capital, as well as being a listed reinsurer adds an interesting dimension to analysts reports in the future. Future analysis could be extremely telling, about reinsurance rates and investor appetite for risk, the importance of cost-of-capital versus equity balance-sheet expenses and the increasing appetite of alternative reinsurance capital to gain a larger slice of the market.

Update: It’s now a quartet of analysts as UBS AG has also initiated coverage on Blue Capital Reinsurance, placing a ‘buy’ rating on the stock.